Response on Earnings Management and Quality of Earnings Report
Please prepare a response to the following post:
Earnings management is the information that is used to produce financial statements. The information is an overly positive view of the company’s financial position. The earnings management information inflates the company’s earnings to make the business seem in a good or even better financial situation than they really are. Companies use earnings management to show consistent profits and smooth fluctuations in earnings.
The importance of earnings management is that large changes in income and expenses may be alarming for investors and creditors that may view this fluctuation as worrisome when in actuality it is a normal process of business. Smoothing over the earnings and expenses just presents the business more positively.
A Quality of Earnings Report has valuable information showing the company’s operations, earnings, and performance. This is a report with unbiased evaluation of the financial operations of the company. By preparing this report, the investors can have a clear view of the financial health of the company. This procedure is important for the company to prepare since it will bring confidence to the investors knowing that the company is following GAAP protocols. This report will enhance the credibility of the financial health since the financial statements adds strength and veracity.
Discussion Post Response
Students Name
Institutional Affiliation
Course
Tutor
Date
Discussion Post Response
Hello, and thank you for your elaborative post on earnings management and the reporting procedures. I agree that earning management is used to formulate favorable financial statements that portray a good picture of a company's performance. Companies publish their accounts to ensure the public can view their performance (Man & Wong, 2013). When the company struggles to make profits, the books may display fluctuations, including losses and huge liabilities. The performance may discourage investors and shareholders, which would mean their investment is at risk. The management may look for ways to manipulate the financial statements to avoid creating a poor performance image. They inflate the company earnings so that the business appears to have a positive performance. The positivity shows the investors that the company is in a better financia...